Congressional Action On Energy Policy Delayed But Ferc Moves Forward

Dec. 13, 2001
Bottom Line Energy Issues - December 2001- Part 3 of 4

Meantime, the Federal Energy Regulatory Commission moved forward with its plans for regional transmission organizations in spite of the danger such consolidations could pose for transmission line security. FERC chair, Pat Wood said, "We intend to move forward to standardize market rules [on two parallel tracks.] The first track will be to resolve issues relating to the geographic scope and governance of RTOs across the nation." The second track will address transmission tariff and market design rulemaking for public utilities, including RTOs. The first rulemaking on this second track was issued (RM-12-00) to help address business and process issues to accomplish the functions of Order 2000. Woods acknowledged that RTO development is in various stages of development around the country and that it is not possible for all RTOs to be operational by Dec. 15 as originally ordered. Therefore, Woods noted, the Commission will address in future orders "the establishment of a progressive, but appropriately measured, timeline for continuing RTO progress in each region." FERC now seems to envision three RTOs in the West, plus systems in the Midwest, Northeast, and the Southeast. However, state regulators have successfully argued for more involvement in federal policy formation regarding RTOs, likely pushing any consensus months, or even years, away.

FERC also announced a new policy it will use when considering applications by power sellers to trade electricity wholesale to ensure that no firm can exercise unfair market power. The Commission hopes the new policy will improve its existing market analysis two ways. When determining a geographic market, FERC will consider transmission constraints to more accurately determine what power supplies can reach buyers and compete with other firms. The new policy also establishes a threshold of market share based on whether an applicant is in a position to demand price above competitive levels because at least some of its capacity is used to meet the peak demand in the market area. Using the new policy, FERC ruled that companies identified as having market power that are not part of an approved RTO must charge cost-based prices for power (as opposed to market-based prices) not committed in long term contracts and publicly disclose those cost-based prices. Companies affected so far include Ohio-based American Electric Power, Atlanta-based Southern Company, and New Orleans-based Entergy Corp. FERC has taken this move in hopes of mitigating future short term price spikes for power during demand peaks as occurred in California last spring. Further, FERC opened a broad investigation under Section 206 of the Federal Power Act to apply the new market-based sales policy to all U.S. wholesale sellers nationwide. Apparently, one of the drivers of this new policy is desire to have all large utilities join RTOs.

By Lewis Tagliaferre

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